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John Lewis Partnership profits down 26% in half year results

The John Lewis Partnership has suffered a sharp fall in profits blamed on the supermarket price war, higher pension costs and redundancy payments to staff in distribution centres.

JLP, which owns the John Lewis department store chain and Waitrose supermarkets, reported a 26% fall in pretax profits before one-off items to £96m in the six months to 1 August.

JLP has been hit by a 1.3% fall in like-for-like sales for Waitrose – its first drop in seven years – and putting aside £4m for redundancy payments.

More than 250 jobs are at risk at John Lewis as it closes three distribution centres in Milton Keynes, one in Stevenage, and one in Carlisle, Cumbria. The staff at the depots have been offered jobs elsewhere in JLP, but the group has booked potential redundancy costs as a restructuring charge in its accounts.

The retailer also warned in its results that pension costs have ballooned by £60m as it battles to manage a £1.2bn pension deficit.

Sir Charlie Mayfield, JLP’s chairman, said it was a difficult market for John Lewis and Waitrose but called the performance solid.

The retailer’s revenue rose 1.9%, with like-for-like sales rising 3% for John Lewis as a 17.1% increase in online sales offset a 1.8% drop in sales completed in stores. Waitrose sales were dragged down by the grocer investing in price cuts, with sales volumes growing 1.8% thanks to the number of customer transactions increasing by 280,000 a week on average compared with last year.

Despite Waitrose suffering a fall in like-for-like sales, its operating profits rose by 0.6% to £136m. This means its profits are now larger than Morrisons, despite the FTSE 100 company generating almost three times more in sales than Waitrose.

“We are pleased with the trajectory we are on,” said Mark Price, managing director of Waitrose sales. “We want to move on from where we are, but in this market that won’t be easy.”

Andy Street, the managing director of John Lewis, said the performance of the department store chain was “stable”. Clothing sales rose 7.5% and home sales 4.9%, but electrical sales dropped 0.7%. Street said the year-on-year comparison of John Lewis sales had been distorted by a boost in sales last summer from the football World Cup and the retailer’s 150th anniversary celebrations. The general election also weighed on the sale of big-ticket items in the runup to May.

John Lewis reported a 16.3% fall in operating profits to £47.1m, with the redundancy charges, increased holiday pay and rising costs impacting the chain.

Despite the pressure on the retailer, pretax profits at a statutory level grew 73% to £224m, thanks to the sale of a distribution centre in west London, which raised £128m.

Mayfield said that trading conditions would remain difficult and that there was little sign of any price inflation in the grocery market as supermarkets cut prices.

“However, I expect sales in both Waitrose and John Lewis to perform comparatively well against the market, helped by promising new ranges and online capability,” he said.

Nonetheless, JLP’s pretax profits for the full year are expected to fall from £342.7m to between £270m and £320m, according to Mayfield, meaning the retailer’s staff face a drop in their annual bonus.

Mayfield, the president of British Retail Consortium and a government adviser, said the chancellor’s national living wage will have a “very modest” impact on JLP given most of its staff earn more than the new £7.20 per hour minimum rate that will be introduced for workers aged 25 and over.

However, he said it could lead to price rises and job losses across the retail industry. “Different organisations will respond in different ways,” Mayfield said.

Under the chancellor’s plans, the minimum wage for over-25s will rise from £6.50 an hour at present to £7.20 in April next year, before rising to at least £9 by 2020.

“It is sort of helpful because it gives us a clear direction over time,” Mayfield added.

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